South Korea has lodged a formal protest with Iran, calling for the immediate release of five nationals aboard an oil tanker seized by Tehran in the Strait of Hormuz.

Saeed Badamchi Shabestari, the Iranian ambassador to South Korea, was called into the foreign ministry in Seoul on Tuesday after Iran’s elite Revolutionary Guards seized a tanker for alleged environmental violations.

Mr Shabestari told local reporters in Seoul that the South Korean nationals were safe. He did not comment further.

The tanker seizure has highlighted the simmering dispute between South Korea and Iran over $7bn in Iranian cash held by South Korean banks.

South Korea, home to a massive refining industry, is the world’s fifth-largest oil importer. Before the latest US-led efforts to restrict Iranian oil revenues, Tehran’s suppliers accounted for almost 15 per cent of Seoul’s oil imports.

According to a commerce ministry official in Seoul, after the US restricted the use of dollars for transactions with Iran, Tehran’s central bank created new accounts with South Korean commercial banks to facilitate trade in Korean won.

Those accounts were frozen after the Trump administration tightened sanctions on Iranian oil exports in 2019, the official said.

Accounts with Woori Bank and Industrial Bank of Korea hold some of the $7bn in frozen Iranian funds, the banks told the Financial Times. They did not provide exact figures.

Iran last month complained it had been unable to transfer €180m out of South Korea to buy vaccines, despite the worsening crisis in the country wrought by the pandemic.

An IBK spokesman said that the bank believed the money could be released for humanitarian purposes but such a move required approval from the US Treasury.

“There is nothing an individual bank like us can do about it,” the spokesperson said.

South Korea’s foreign ministry declined to answer questions about the frozen funds.

“We are trying to secure the release of our sailors and the ship as soon as possible,” Choi Young-sam, foreign ministry spokesperson, said.

Ali Rabiei, Iran’s government spokesman, said his country had not taken the tanker hostage.

“But even if there is any hostage taking, it is done by the Korean government,” he said on Tuesday. “It has seized more than $7bn of our money under baseless excuses and does not even let us use it for goods which are not apparently subject to sanctions at a difficult time for our people when imports . . . of medicine are very important.”

The commerce ministry official said no legal proceedings, including arbitration, were under way over the cash, adding: “This is about bilateral relations.”

The stand-off comes amid renewed tensions between Washington and Tehran as concerns rise over advances in Iran’s uranium enrichment programme.

South Korea’s vice-foreign minister will travel to Iran in a bid to negotiate the release while a South Korean destroyer with 300 troops has been dispatched to waters near the Strait of Hormuz, officials said. The vessel usually operates on anti-piracy missions in the region.

Additional reporting by Najmeh Bozorgmehr in Tehran